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General Average: Jurisdiction

Galaxy Special Maritime Enterprise -v- Prima Ceylon Limited

The "OLYMPIC GALAXY"

May 2006

On 7 July 2004 Galaxy Special Maritime Enterprise ("Galaxy") completed the purchase of the vessel Olympic Galaxy ("the vessel"). The unusual feature of the transaction was that when the transfer of ownership took place the vessel was at sea, bound for the Sri Lankan port of Trincomalee where she was scheduled to discharge her cargo of Australian wheat. Three days later, the vessel ran aground off Trincomalee. Galaxy entered into a Lloyd's Form salvage contract with professional salvors who succeeded in refloating the vessel. Galaxy declared general average ("GA"). In order to obtain delivery of its cargo the consignee, Prima Ceylon Ltd ("Pima"), provided GA security to Galaxy in the form of a Lloyd's average bond.

In subsequent arbitration proceedings under the salvage contract the salvors were awarded US$2,423,040 (of which the proportion payable by Prima, as owner of the cargo, was US$1,252,560) plus interest and costs. In January 2005 Prima commenced proceedings against Galaxy in Sri Lanka claiming both damages in respect of the grounding incident and a declaration of non-liability concerning any GA claim. Galaxy reacted by commencing proceedings against Prima in London claiming a contribution to GA. Prima applied for the English proceedings to be set aside or stayed pending the outcome of the proceedings in Sri Lanka. However, as previously reported in our September 2005 Bulletin on General Average ("Where can Average Bonds and Guarantees be Enforced?"), the Commercial Court dismissed the application, holding that there was a clear advantage in having the average bond, which was governed by English law, interpreted by an English court. Prima appealed.

Prima submitted that, in exercising the court's discretion, the judge had been wrong to treat as decisive his finding that the average bond was governed by English law, and that he should not have concluded that the disputes between the parties ought, therefore, to be resolved in England.

Delivering the Court of Appeal's judgment, Longmore LJ agreed with Prima that the judge had been beguiled into accepting the proposition that all the rights and wrongs of the GA claims would have to be determined by English law. Even if the average bond was itself governed by English law, the judge did not appear to have fully appreciated that there was a substantial argument that the GA claims would nonetheless fall to be determined in accordance with Sri Lankan law. It was common ground that the only contract between the parties was the average bond, which provided that if (as in this case) there was no contract of carriage, GA was to be adjusted according to the law of the place where the maritime adventure ended. It seemed that the judge had also failed to take fully into account that, in the absence of any contract of carriage, there was no room for the incorporation of the Hague Rules and Galaxy would not, therefore, be able to rely on any exclusion in respect of negligent navigation on which its entitlement to GA contribution could depend. It appeared to Longmore LJ that the judge's failure to take full account of this contrary argument meant that the main plank for his exercising discretion in favour of allowing the English proceedings to continue disappeared.

He was also critical of the judge's apparent failure both to accord proper weight to the Sri Lankan proceedings and to take into account that they had been issued first and would probably continue in any event. The manner in which he had exercised discretion was, therefore, also flawed on that ground. Longmore LJ was therefore satisfied that this was one of those rare cases in which it was necessary for the Court of Appeal to interfere and to exercise its discretion afresh.

The onus was on Galaxy to show that the English proceedings should continue. After weighing all the factors, Longmore LJ had little doubt that the balance came down substantially in favour of setting aside the English proceedings. The facts of the dispute had little to do with England, but everything to do with Sri Lanka where: (i) there were witnesses of fact, including the local pilot, whose evidence was potentially important; (ii) proceedings were continuing; and (iii) Prima carried on business. Prima's appeal was therefore allowed, thus enabling the Sri Lankan proceedings to determine the rights and liabilities of the parties.

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